Bitcoin’s Macro Status, Ethereum’s Cultural Reset, and Solana’s Growth Risk | Jon Charbonneau

This episode dissects the diverging paths of Bitcoin as a macro asset versus the fierce platform competition among Ethereum, Solana, and emerging L1/L2s, revealing critical strategic considerations for Crypto AI investors.

Introduction & Current Market Landscape: VC vs. Liquid

• Jon Charbonneau (DBA) joins hosts Bacio and Danny to discuss the crypto market state, L1s, and L2s.
• Jon notes a slowdown in the venture capital (VC) market compared to a year ago, primarily due to a reduction in lower-quality "buzzword" deals (like generic AI agent decks). He finds the current, quieter market preferable, allowing focus on higher-quality deals and existing portfolio companies refining their strategies or products.
• On the liquid side, Jon emphasizes the market's short-term unpredictability, heavily influenced by macro factors and key figures. He observes a growing divergence between Bitcoin and altcoins.
  • "My honest answer is it's anyone's guess at this point what is going to happen in the next like few months or so... the main practical short-term driver of all the liquid markets right now is just like what's going on with macro?" - Jon Charbonneau

Bitcoin's Potential Decoupling and Market Sentiment

• The hosts discuss Bitcoin's price resilience (mentioned as $95k, likely a transcription error or hyperbole, but reflecting strength relative to sentiment) despite negative sentiment often seen on Crypto Twitter.
• Jon highlights the increasing disparity between Bitcoin's price action and the prevailing pessimistic sentiment within the crypto community, suggesting broader adoption beyond typical crypto circles.
• Danny notes the negativity on Twitter, making it feel "negative EV" (Expected Value), indicating the platform provides diminishing returns for market insights currently.
• Jon agrees, stating Twitter's signal quality for accurate sentiment and interesting developments has degraded, leading him to rely more on direct, often in-person communication, especially benefiting from the concentration of events in New York.

VC Benchmarking: Against Bitcoin or Alts?

• The discussion touches on a recent debate sparked by Haseeb Qureshi (Dragonfly) and Gwart (Variant) regarding whether VC funds should benchmark performance against Bitcoin.
• Jon aligns with the view that benchmarking against Bitcoin doesn't make sense for altcoin-focused venture funds. He argues they represent fundamentally different markets and risk profiles.
  • Bitcoin exposure targets a digital gold/macro asset thesis.
  • Altcoin/venture investments target the growth of tech platforms, stablecoins, and new crypto-native economies.
• Jon suggests a more appropriate benchmark would be a basket of relevant altcoins (like ETH, SOL, BNB), reflecting the actual market segment the fund invests in. He advises LPs wanting Bitcoin exposure to buy Bitcoin directly.
  • "These are just like fundamentally different markets at this point... It's very easy to see one of those thesis playing out in full and the other one just completely going to zero and vice versa." - Jon Charbonneau

Solana (SOL) Analysis: Growth vs. Valuation Risk

• Jon views Solana as the current leader in "single decentralized execution environments" with a strong team executing well.
• However, he flags the increasing challenge of underwriting Solana's valuation ($80-100B+ market cap). Justifying significant further upside requires a venture-like bet on massive (10-100x) market growth, as current revenue multiples are aggressive and likely face compression.
  • Priority Fees: Revenue derived from users paying extra for faster transaction inclusion, often during periods of high network congestion (e.g., memecoin trading). Jon expects margins on these fees to compress significantly over time due to market efficiency and potential value capture shifts towards apps.
• Strategic Implication: Investors need to assess if Solana's potential market expansion can outpace fee margin compression to justify its current valuation and future growth expectations.

Celestia (TIA) Analysis: A Pure Venture Bet on Modularity

• Jon contrasts Celestia with Solana, framing it as a purer, high-risk/high-reward venture bet with currently zero revenue.
• Celestia is positioned as a bet on the "strong crypto hypothesis" – a future with hyper-financialization, numerous chains, and potentially AI agents driving massive transaction volume.
  • Celestia: A modular blockchain focused primarily on Data Availability (DA), allowing other chains (rollups) to post their transaction data to it for security and verification without handling execution themselves.
• He argues Celestia's architecture is potentially best positioned to benefit if this multi-chain, high-throughput future materializes, making it a more plausible candidate for a 100x outcome compared to similarly priced L1s/L2s, despite acknowledging a higher probability of it failing.
• Strategic Implication: Celestia represents a bet on a specific architectural future (modularity) requiring a long-term, venture-style outlook, distinct from cash-flow-based analyses applicable to more mature chains.

Solana vs. Celestia: Coexistence and Market Share

• Jon believes Solana (integrated execution) and Celestia (modular DA) can definitely coexist and both be successful long-term.
• The key question is market share: even if Solana remains the dominant single execution environment, a large "long tail" market for specialized rollups using modular DA layers like Celestia could still be substantial.

Sustainability of Solana's Priority Fees & Future On-Chain Assets

• Danny raises the debate around the sustainability of Solana's priority fees, largely driven by memecoin trading and arbitrage (estimated >80% of fee drivers).
• The counter-thesis is that Solana could survive on base fees if it achieves massive (100x+) scale (e.g., 1 million TPS). Danny notes Anza's commitment to scaling (targeting 2x TPS increase by year-end).
• Jon believes memecoin/retail trading will drive fee profits in the short-to-medium term due to higher user willingness to pay.
• Regulated assets (like tokenized stocks) coming on-chain will likely generate sustainable revenue but require massive scale as users won't tolerate high fees or MEV (Maximal Extractable Value – profit extracted by reordering/inserting transactions). This transition will take significant time.
• Strategic Implication: Near-term Solana revenue relies heavily on volatile, high-fee activities. Long-term sustainability depends on achieving significant scale to attract and monetize high-volume, low-margin institutional/RWA flows.

The Rise of SVM Chains (Eclipse, Fogo, Atlas)

• The discussion shifts to new chains using the Solana Virtual Machine (SVM) but operating as rollups or distinct L1s (Eclipse, Fogo, Atlas, Bullet).
  • SVM (Solana Virtual Machine): The execution environment that processes smart contracts on Solana, known for its parallel processing capabilities.
• Jon (investor in Eclipse) sees merit in both integrated L1s (Solana) and modular/rollup approaches (like Eclipse posting data to Celestia or Ethereum). He views the L1 vs. L2 distinction as less important than the architectural trade-offs.
• Rollup architectures often use centralized sequencers initially, trading off some decentralization for benefits like:
  • Easier implementation of higher throughput/lower latency (IBRL - Instant Block Rule Latency).
  • Enhanced transaction control/ordering (MEV management, private transactions, verifiable ordering).
  • Ability to return MEV profits to applications, improving app margins.
• Strategic Question: Can permissionless L1s like Solana evolve to offer comparable features (e.g., transaction streaming via Shreds, pre-confirmations like Monad aims for) to compete with the UX advantages of more permissioned rollup environments? Or will the market segment based on these trade-offs?

Monad vs. Mega ETH: Competing for High-Performance EVM

• The conversation compares Monad (a high-performance EVM L1) and Mega ETH (an L2 focused on ultra-low latency via a two-tiered block system). Both are currently on testnet.
  • Monad: Aims to dramatically increase EVM (Ethereum Virtual Machine) throughput via parallel execution while maintaining compatibility.
  • Mega ETH: An L2 using frequent "mini-blocks" (e.g., 10ms) for low-latency confirmations, bundled into larger EVM-compatible blocks (e.g., 1s).
• Jon suggests Mega ETH's success hinges on ultra-low latency being critically important for market structure (e.g., better spreads for HFTs) and L1s being unable to replicate it effectively.
• He leans towards Monad being better positioned overall due to its fundamental EVM optimizations and potential to offer low-latency features like pre-confirmations, unless the latency difference proves insurmountable and crucial.
• Strategic Implication: The success of these platforms depends on whether marginal latency improvements significantly impact market structure and user experience, a currently unresolved question.

The L1 Premium: Does It Still Exist?

• Bacio argues an "L1 premium" still exists in valuations, though compressing. Jon agrees it exists but thinks it's somewhat "stupid" and driven by:
  • Path dependence (early successful chains were L1s).
  • Idiosyncrasies (Base, a highly successful L2, lacks a token).
  • Market irrationality/branding ("L1 sounds cooler").
• The rational difference, Jon argues, lies in whether a chain owns its state and users (like Solana, building its own ecosystem) versus acting as an extension of another L1 (like early L2s focused on porting Ethereum users/assets).
• As L2s like Base increasingly build their own unique ecosystems and user bases, the technical L1/L2 distinction becomes irrelevant to valuation; what matters is sovereignty and network effect ownership.

Ethereum Scaling: Donkrad's Proposal & The Cultural Shift

• Danny introduces a recent forum post by Dankrad Feist proposing exponential scaling of Ethereum's L1 execution gas limit (e.g., 10x in 2 years, 100x in 4 years).
• Jon strongly supports this, aligning with his previous calls for a predictable scaling schedule rather than ad-hoc increases. He sees it as crucial for signaling Ethereum's commitment to scaling the L1 and attracting developers/apps back.
• The debate shifts to "how much throughput is enough?" Danny notes even a 10x increase leaves Ethereum significantly behind Base or Solana in raw TPS.
• Jon argues Ethereum's unique position (capital, integrations, network effects) means even moderate scaling could retain significant activity (NFT mints, token launches, DeFi on core assets) if usability improves sufficiently. There's no magic number, but "more is better."
• Strategic Implication: Ethereum's renewed focus on L1 scaling is a significant narrative shift. Investors should monitor the actual implementation progress and its impact on retaining/attracting activity versus high-throughput competitors.

EOF is Dead: A Sign of Ethereum's Evolving Priorities?

• Danny highlights the likely cancellation of EOF (EVM Object Format), a long-debated technical change to the Ethereum Virtual Machine.
  • EOF (EVM Object Format): A proposed set of changes to Ethereum's code execution format intended to simplify analysis and potentially enable new features, but complex and debated for years regarding its user impact.
• Jon sees EOF's demise as positive, reflecting a pragmatic shift away from complex, low-user-impact changes towards priorities like UX and scaling that users actually demand. He admits he largely ignored EOF due to the lack of clear user benefit articulation.
• Storm (Paradigm) is quoted framing this as a "massive milestone" symbolic of Ethereum prioritizing user impact over sunk costs or process adherence.
• Strategic Implication: This signals a potential cultural reset within Ethereum development, prioritizing practical improvements. Researchers should track if this translates into faster progress on user-facing features and scaling.

ETH/BTC and Bitcoin's Unique Status

• The discussion revisits the ETH/BTC chart's weakness. Jon attributes much of Ethereum's recent underperformance to the market recognizing Bitcoin's distinct role, solidified by US ETF approvals.
• Danny emphasizes the significance of the US effectively "anointing" Bitcoin, separating it from the "tech platform" competition where Ethereum, Solana, and others reside.
• Jon notes DBA rotated their remaining ETH into Bitcoin around the US election signal, viewing them as fundamentally different asset classes now.
• Strategic Takeaway: Bitcoin's investment thesis is increasingly tied to macro adoption as digital gold, while Ethereum and other L1s/L2s compete based on technological merit, ecosystem growth, and fee generation within the smart contract platform market.

Ethereum vs. Solana: Converging Paths?

• Danny frames the competition interestingly: Ethereum is adding performance, while Solana is adding decentralization (second client - Firedancer/Frankendancer, verifying nodes).
  • Firedancer/Frankendancer: A second, independent validator client for Solana being developed by Jump Crypto, aimed at increasing network resilience and performance. Frankendancer is an interim version combining parts of the new client with the existing one.
• The race is on: who reaches a state of being both highly performant and sufficiently decentralized first?
• Strategic Consideration: The long-term winner may be the platform that best balances performance, decentralization, and developer/user adoption, rather than maximizing one dimension at the expense of others.

Conclusion

The discussion underscores the critical divergence between Bitcoin's macro-asset thesis and the competitive tech platform battle among L1s/L2s. Investors must track Ethereum's scaling progress and Solana's growth sustainability, as platform dominance remains highly contested and architectural choices carry significant weight.